Installment sale not working for CA state return

[aglambert]

Hello,

I am not a resident of CA and I sold a CA property in 2023 as an installment sale where I provided seller-financing with a Deed of Trust. In TurboTax Federal it told me to enter that as an installment sale and it calculated tax for the long-term gain for the amount of principal I received in 2024. However, when I complete the CA state return it is not recognizing any taxable event for the installment payment I received in 2024, showing CA tax due of $0, which I believe is incorrect. My former tenant was required to withhold part of the payment and submit it to the FTB, so I am pretty sure I owe taxes.

How do I get TurboTax to properly handle my installment sale of a home in CA? Not sure if this is a bug in TurboTax or I am doing something wrong.

[aglambert]

I have looked at California FTB documents and confirmed that CA follows federal methods for tracking installment sales of property. However, I don't know how to get @turbotax  to complete my CA return correctly and show the tax I owe. I received $25,000 principal in 2024 and the buyer withheld 3.33% from the payment (per CA law). According to my calculation I would be in the 9.3% tax bracket, so I should owe 5.99% on the $25,000 principal received, or $1,497.50. So, I don't know why TurboTax says my CA tax is $0.

I also have a tax question on the interest received: do I owe CA tax on interest received on the note, even if I am a non-resident? Also, are my calculations above correct? If I don't get an answer back from TurboTax by the filing deadline I will submit a payment to FTB to avoid penalties.

[MonikaK1]

The installment sale income from a California property is taxable to a nonresident but the interest income is not. 

According to the California Franchise Tax Board:

As a nonresident, you pay tax on your taxable income from California sources.

Sourced income includes, but is not limited to:

• Services performed in California
• Rent from real property located in California
• The sale or transfer of real California property
• Income from a California business, trade or profession

FTB Publication 1100, Taxation of Nonresidents and Individuals Who Change Residency, further clarifies:

California taxes installment gains received by a nonresident from the sale of tangible property and intangible property that is sourced to California. California taxes real property based upon where the property is located.

California taxes the installment proceeds received by a nonresident to the extent the income from the sale was from a California source.

Example 2

You have always been a nonresident of California. On March 1, 2022, you sold a California rental property in an installment sale. During 2022 and 2023, you received installment proceeds comprised of capital gain income and interest income.

Determination

The capital gain income is taxable by California in both 2022 and 2023, because the property was located in California. The interest income is not taxable by California and has a source in your state of residence.

Your California Form 540NR starts with the Federal Adjusted Gross Income and then any additions or subtractions are shown on California Form Schedule CA (540NR). Review that form and if you need to make any adjustments, go back to the California interview and review your answers to the questions.

@aglambert